High-powered taxation in the Silver State

Nevada’s renewable portfolio standard is damaging the state economy and destroying jobs

Politicians have long sold the myth that the national and state economies would one day be rescued by "renewable" energy. For years, however, a fundamental problem kept these politicians from achieving their goal of making renewable energy culturally dominant:

Freedom.

Electricity generated by so-called "renewable" sources like solar panels is far more expensive and less reliable than electricity generated through traditional means such as nuclear, coal-fired or natural gas-fired power plants. Confronted with this basic fact, consumers, when given the choice, have chosen not to pay more for electricity generated by solar panels or wind turbines.

Some states operate voluntary "green power" programs that allow individuals to choose to pay a premium in order to receive a portion of their electricity from renewable sources. These programs demonstrate how little enthusiasm the public has for financially supporting the renewable vision.

"Nationally, average participation rates among utility green-pricing programs have remained steady at just more than 1% of customers," observes La Capra Associates, a Boston-based renewable-energy consultancy.

Frustrated that free individuals overwhelmingly choose not to finance their schemes for a renewable-energy future, politicians across the country opted for a different approach: force. Nevada lawmakers, for example, adopted a "renewable portfolio standard" in 1997 — a legal requirement that the state-protected electric-utility monopoly produce or acquire a rising proportion of its energy from renewable sources.

Because earlier legislators had made the electricity business in Nevada into a government-subsidized and regulated monopoly, Silver State consumers have no choice in electricity providers. Thus, this law compels consumers to purchase electricity from monopoly outlets that use high-cost renewable sources. This is despite the preferences individuals clearly demonstrate for low-cost energy.

This system of state compulsion means that a renewable portfolio standard is little more than a tax on energy.

What's more, energy taxes like Nevada's renewable portfolio standard are notoriously regressive. Families and individuals at the lower end of the income scale expend a larger share of their income to meet their energy needs. Often, low-income families are compelled to sacrifice other top priorities in order to heat and cool their homes and refrigerate their food.

For instance, Suffolk University's Beacon Hill Institute has shown that a federal renewable portfolio standard would induce thousands of preventable deaths per year because the mandate for more expensive energy would leave fewer resources available for critical health care services.

Politicians attempting to foist a renewable-energy culture upon an unwilling public claim that the high cost of renewable energy will decline — if only they guarantee a market to renewable energy companies by forcing consumers to buy their product. Politicians, however, have been showering renewable-energy companies with taxpayer-funded corporate subsidies for decades and the costs of renewable energy remain high. According to the U.S. Department of Energy, these costs will remain high into the foreseeable future even with the vast array of subsidies and mandates now in place. The DOE estimates that, among new generation facilities entering service in 2016, photovoltaic solar energy will be nearly 3.5 times more expensive than electricity produced by a natural gas-fired power plant.

US Average Levelized* Cost (Cents/kWh) for Plants Entering Service in 2016

Plant Type

Levelized Capital Cost

Fixed O&M

Variable O&M (including fuel)

Trans-mission Investment

Total System Levelized Cost

Conventional Coal

6.53

0.39

2.43

0.12

9.48

Advanced Coal

7.46

0.79

2.57

0.12

10.94

Advanced Coal with CCS

9.27

0.92

3.31

0.12

13.62

Natural Gas-fired

Conventional Combined Cycle

1.75

0.19

4.56

0.12

6.61

Advanced Combined Cycle

1.79

0.19

4.21

0.12

6.31

Advanced CC with CCS

3.46

0.39

4.96

0.12

8.93

Conventional Combustion Turbine

4.58

0.37

7.15

0.35

12.45

Advanced Combustion Turbine

3.16

0.55

6.29

0.35

10.35

Advanced Nuclear

9.01

1.11

1.17

0.1

11.39

Wind

8.39

0.96

0

0.35

9.7

Wind - Offshore

20.93

2.81

0

0.59

24.32

Solar PV

19.46

1.21

0

0.4

21.07

Solar Thermal

25.94

4.66

0

0.58

31.18

Geothermal

7.93

1.19

95

0.1

10.17

Biomass

5.53

1.37

4.23

0.13

11.25

Hydro

7.45

0.38

0.63

0.19

8.64

Levelized = the price at which electricity must be generated from a specific source to break even.
Data: Energy Information Administration, Annual Energy Outlook 2011, December 2010.

Politicians and their rent-seeking corporate allies in the renewable-energy field also offer the empty promise that renewable-energy mandates will lead to the creation of thousands of new jobs — as if inefficiency is the route to global prosperity.

Sure, if policymakers require individuals to purchase renewable energy, then someone will need to manufacture wind turbines and solar panels. Others will be needed to install and maintain these components.

However, these jobs come at the expense of many other jobs. Energy is an input into every productive process. Mandates that require energy to be produced through more costly means raise production costs in every other sector. This leads to the offsetting destruction of jobs in sectors that consumers find more valuable as higher production costs result in higher prices and lower living standards.

Econometric analyses of renewable portfolio standards in Colorado, Delaware, Minnesota, Montana, New Mexico and Ohio have all shown that this energy tax destroys thousands more jobs than are created within the renewable energy sector. The Economist also reports that for every one renewable energy job created through government mandates and price supports in Spain, 2.2 jobs were destroyed elsewhere in the economy.

The inevitable conclusion is that Nevada's renewable portfolio tax is limiting — not promoting — job growth within the state. According to the U.S. Department of Energy, Nevada already has the highest electricity costs in the Intermountain West. The renewable portfolio tax only exacerbates this trend and renders Nevada a less attractive destination for investment.

The renewable portfolio standard is an affront to liberty, consumer choice and the market process. It is a regressive tax that stifles job growth and economic recovery. It's high time that lawmakers remove this onerous burden.

Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more visit http://npri.org.

Issues

Geoffrey Lawrence is the Director of Research and Legislative Affairs at NPRI. Geoffrey is a frequent commentator on public policy in print, radio and television news in Nevada and his work appears regularly in publications around the state and the nation. He is noted for having developed comprehensive proposals for reform of the state revenue structure, budgeting methods and spending habits.